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Iran to Allow Nuclear Inspections; House Defies President Bush Over Iraq Aid

Aired October 21, 2003 - 18:00   ET


ANNOUNCER: From Washington, this is LOU DOBBS TONIGHT for Tuesday, October 21. Here now, Lou Dobbs.
LOU DOBBS, CNN ANCHOR: Good evening from the nation's capital.

Tonight: As President Bush struggles to convince Congress and the American people that the United States is pursuing the right policies in Iraq, a diplomatic breakthrough on Iran and its nuclear ambitions. Tehran today said it will allow unrestricted inspections of its nuclear facilities. Iran is also promising to suspend the enrichment of uranium, a process that could be used to develop nuclear weapons.

The White House today welcomed the announcement as a first step toward full compliance with international safeguards. But a senior Iranian official refused to say how long the freeze on uranium enrichment will last.

Christiane Amanpour reports.


CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT (voice-over): Faced with mounting pressure over its nuclear program, Iran has now agreed to tougher new inspections and to suspend, at least temporarily, uranium enrichment, this to allay fears that it would be used for nuclear weapons.

The Islamic Republic of Iran will sign, said Hassan Rohani, head of the country's Supreme Council for National Security. He was referring to the additional protocol to the Nonproliferation Treaty, which allows inspectors to visit any nuclear site at any time, without giving prior notice. In an atmosphere of public conviviality, Iran's foreign minister and other officials held talks with the foreign ministers of Britain, France, Germany, who had made a special one-day trip to Tehran to press the urgency of the matter.

DOMINIQUE DE VILLEPIN, FRENCH FOREIGN MINISTER: We are talking about proliferation, which is, as everyone knows, a huge challenge for the world community.

AMANPOUR: If Iran had failed to accept the IAEA's demand for full disclosure and cooperation, the matter would have been referred to the U.N. Security Council, which could impose sanctions against Iran. Iran insists it is not building nuclear weapons and told the foreign ministers such weapons had no place in their defense doctrine. Rohani, the senior Iranian official in charge of the nuclear issue, said that Tehran agreed to more invasive inspections to -- quote -- "express its goodwill and create a new atmosphere of trust and confidence between Iran and the international community."

Christiane Amanpour, CNN, London.


DOBBS: An apparent breakthrough with Iran, but a building showdown between the White House and Congress on at least a portion of the funding for the rebuilding of Iraq.

The House of Representatives defied the White House and voted, in a nonbinding resolution, to convert part of the reconstruction money for Iraq into a loan, rather than a grant. The Senate has already voted in favor of a loan. The votes could lead to a presidential veto for the entire spending bill for Iraq and Afghanistan.

Jonathan Karl reports from Capitol Hill -- Jonathan

JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: Well, Lou, this suggestion that the White House could veto all that money for Iraq and Afghanistan came in the form of a letter from the president's budget director to congressional leaders.

He wrote, of the loan provision -- quote -- "If this provision is not removed, the president's senior advisers would recommend that he veto the bill. The letter goes on, "Including a loan mechanism slows effort to stabilize the region and to relieve pressure on our troops, raises questions about our commitment to building a democratic and self-governing Iraq, and impairs our ability to encourage other nations to provide badly-needed assistance."

That letter hit Capitol Hill with a thud today. Many Republicans up here saw it as unnecessarily heavy-handed. One Republican who supports the president on this called it stunningly stupid and added that he believes that the president is getting bad advice on this.

Now, a couple hours after that letter was sent to Capitol Hill, over on the House, which originally supported the president on this issue, a nonbinding measure, which you mentioned, passed by an overwhelming majority, 277-139 against, with 84 Republicans voting, saying that the final provision should include a loan provision.


REP. DANA ROHRABACHER (R), CALIFORNIA: I don't see any reason why, after bearing such a heavy burden, not only the $66 billion, but so many other billions of dollars, why the American people have to carry the whole burden. Why don't we permit half of this, $10 billion of this, to go in the form of a loan that can be repaid?

(END VIDEO CLIP) KARL: Now, as you mentioned, that House vote was a nonbinding vote, Republicans remain confident that they will get what president wants here, that the final bill that is sent to the president probably next week will not include loans.

But, Lou, both Houses are now on record saying that they favor loans, not grants -- Lou.

DOBBS: It appears that the White House has managed, at least on this issue of about $10 billion, Jonathan, to have snatched defeat from the jaws of victory. What is the leadership, the Republican leadership, saying there on Capitol Hill?

KARL: They're really quite shocked. Many Republicans up here who agree with the president on this don't understand why this veto threat was issued. They say, look, he was going to win anyway when this thing was done, so why threaten a veto? It didn't seem to make sense. Republicans are not happy up here.

DOBBS: Jonathan Karl from Capitol Hill, thank you.

KARL: Sure.

DOBBS: An Army medical team began an investigation into complaints about the deplorable conditions at a military base in Fort Stewart, Georgia. Sick and wounded National Guardsmen and reservists say they have been forced to wait for extended periods of time for medical treatment. They also say living conditions attention base are substandard and simply appalling.

Kris Osborn reports from Fort Stewart.


KRIS OSBORN, CNN CORRESPONDENT (voice-over): With memories of the war in Iraq fresh in his mind, this National Guardsman says he's so injured, he can't run down the street.

UNIDENTIFIED MALE: I didn't think that soldiers that went and fought a war for their country and served their country would be treated like this.

OSBORN: Another Guardsman says he's haunted by thoughts of death and suffering anxiety attacks. He, too, complains access to doctors at Fort Stewart is limited.

UNIDENTIFIED MALE: We actually was part of it 100 percent, and then come back and being treated like, OK, you did your part, but now we don't -- we don't know you.

OSBORN: These soldiers are among roughly 400 National Guard and Reserve troops back from war in Iraq on what's called med hold, deemed not deployable for medical reasons. They say that since returning from the war, they're being treated as second-class citizens, pushed aside, while their active-duty comrades receive priority care. Their principal complaint, it takes too long for them to get an appointment to see a doctor. The garrison commander at Fort Stewart flatly says, that's not true.

COL. JOHN KIDD, FORT STEWART GARRISON COMMANDER: There is no segregation in treatment or the way we deal with soldiers on this post. Sick soldiers are sick soldiers.

OSBORN: Seeing medical care is given according to need, Fort officials insist there is no access problem. They say all serious injuries are promptly treated and any soldier can walk in into a 24- hour medical facility and receive care.

But officials acknowledge, Fort Stewart has been swamped with large numbers of returning troops. And, they say, more help is on the way.

(on camera): U.S. Army officials say, a formal assessment team comprised of doctors and medical experts is currently in the process of conducting a case-by-case review. They'll examine each complaint to ensure that all injured soldiers receive the treatment they need.

Kris Osborn, CNN, Fort Stewart, Georgia.


DOBBS: Meanwhile, in Iraq, coalition troops and Iraqi police arrested nearly 50 people in predawn raids in Karbala. A coalition military spokesman said the raids targeted a group that was involved in armed clashes with rival Shiite factions.

Those clashes were part of a power struggle between a strong opponent of the United States and religious leaders prepared to work with the coalition.

Defense Secretary Donald Rumsfeld today said an inspector general will investigate controversial remarks about radical Islamists by General William Boykin. General Boykin said radical Islamists hate the United States because America is a Christian nation. Secretary Rumsfeld said he is still not clear about the precise language used by the general.


DONALD RUMSFELD, SECRETARY OF DEFENSE: I have since seen one of network tapes. And it had a lot of very-difficult-to-understand words with subtitles which I was not able to verify. So I remain inexpert on precisely what he said.


DOBBS: Turning now to a multibillion dollar battle over the modernization of the U.S. military, the Air Force says it needs to replace its aging fleet of refueling tankers. The Pentagon wants to lease those aircraft instead of buying them. What does that mean to you, the tax payer? More money. Lisa Sylvester is here with the report.

LISA SYLVESTER, CNN CORRESPONDENT: Lou, it might seem a like fairly straightforward question: Should you buy or should you lease? But we're talking about the difference of $6 billion, money out of the taxpayers' pocket.


SYLVESTER (voice-over): Major Derek Levine (ph) flies as KC-135 that's older than he is, one of the Air Force's main refueling tankers. The average tanker is 43 years old.

UNIDENTIFIED MALE: The old bird's getting a little old.

SYLVESTER: No doubt these plane will eventually be replaced, but it's how the Defense Department is going about it.

The Air Force wants to lease 100 Boeing 767s as refueling tankers at a cost of more than $20 billion, even though it would cost almost $6 billion more to lease the planes than to buy them.

SEN. JOHN MCCAIN (R), ARIZONA: It's the most incredible ripoff that I have seen in over 20 years here. And it's very, very disillusioning.

SYLVESTER: The Boeing lease deal was never open to bids from other defense contractors. The Air Force never did a study looking at alternatives, including whether it could squeeze out a few more years from the existing tankers. And some critics contend this with a sweetheart deal to prop up Boeing, which has faced a series of financial setbacks.

KEN BOEHM, NATIONAL LEGAL AND POLICY CENTER: Boeing had suffered a lot at the end of 2001. The airplane industry, which manufactures a lot of civilian planes and so forth, was off because of September 11. They just lost a major defense contract and they lost a lot of contracts to build planes for Asian countries because of their economic problems.

SYLVESTER: But the Air Force says it would get the planes five years faster under its lease proposal. And officials say they don't have the additional $14 billion up front to replace the aging planes.

MARVIN SAMBUR, U.S. AIR FORCE ASST. SECY. FOR ACQUISITION: That's the question that you face all the time when you make a decision to mortgage your house or lease a car. The question is, do you have the up-front money vs. your ability to pay later?


SYLVESTER: The bottom line is, if the Air Force were to purchase the planes, it would have to go through a very detailed process that would pit this project against other major acquisitions. And, Lou, the Pentagon does not want to find itself in a situation where it has to essentially choose between buying more tankers or buying more fighters.

Now, there is a compromise proposal in the Armed Services Committee that would essentially split it up, where they would buy 75 planes and lease 25.

DOBBS: This city is, after all, the capital of compromise. Lisa, thanks -- Lisa Sylvester.

Coming up next here: One leader in Congress has stepped up to fight to keep American jobs here at home. He's our guest tonight. Congressman Don Manzullo joins us.

And "Spies in the Sky," multibillion dollar satellites so secretive, the companies who build them don't even know how they've used. Our national security correspondent David Ensor begins a series of special reports on those "Spies in the Sky."

And "America's Bright Future." Tonight, we introduce you to a junior high school student who is also a world-class violinist, a philanthropist and, in his spare time, a golfer, among those we're profiling this week who will light up our future years. Bill Tucker will have the report.

That's coming right up.


DOBBS: This week, we begin a series of special reports on the future of this country's spy satellites.

In the more than two years since September 11, Congress has poured billion of dollars -- the exact amount, of course, is classified -- into the U.S. intelligence budget. That money is creating opportunities for private satellite-makers at a time when some officials say the United States faces, without question, a satellite gap.

David Ensor is here now and has the report for us -- David.

DAVID ENSOR, CNN NATIONAL SECURITY CORRESPONDENT: Well, Lou, it's also creating opportunities for software developers.

There are real concerns about getting the next generation of satellites up before the old ones wear out. And we'll have more on that tomorrow. But, first, what struck us in New Orleans when we went to this conference was the large number of companies that are offering high-tech ways for America's intelligence agencies to better exploit America's spy satellite edge in, for example, the war on terrorism.


UNIDENTIFIED MALE: Able to meet diverse threats around the world.

ENSOR (voice-over): It is a classic high-tech trade fair.

UNIDENTIFIED MALE: We provide the database.

ENSOR: But there's a catch. The companies are hawking their wares in New Orleans mostly to just one customer, the U.S. government. And most of the work they hope to get is secret.

(on camera): Does that mean that the CIA is using this technology?

RANDY RIDLEY, VICE PRESIDENT, METACARTA: I can't comment on that, unfortunately.

ENSOR (voice-over): Having failed thus far to find Osama bin Laden, Saddam Hussein and Iraqi weapons of mass destruction, the U.S. intelligence community knows it needs all the help it can get. So does the Bush administration.

STEPHEN CAMBONE, DEFENSE UNDERSECRETARY FOR INTELLIGENCE: We need to know something about everything all the time.

ENSOR: Most of what's on offer here is software designed to mine the vast quantities of top-secret satellite pictures and intercepts gathered by U.S. spy satellites or aircraft, manned and unmanned. A key new factor, too, are the new private satellite companies that are now getting permission to take pictures of ever-better resolution, which makes all the difference.

AL LEAGUE, NIMA OFFICIAL: This is 6-inch-resolution imagery vs. one-meter-resolution imagery.

ENSOR (on camera): Dramatically different.

LEAGUE: It is. And it creates an entirely new perspective for decision-makers to war fighters.

RETIRED LT. GEN. JAMES CLAPPER, NIMA DIRECTOR: We are heavily dependent on our industrial colleagues to do a lot of our work. And that trend will continue.

ENSOR: This is an example of an item that might actually be in use soon by military and intelligence officers, perhaps in the next phase of the war on terrorism. It's e-mail. It's a cell phone. It will be on the market soon. But if you're that intelligence officer, it's much more than that. You can key in to satellite pictures of what could be your target that night.

UNIDENTIFIED MALE: Boeing is developing intelligent software.

ENSOR (voice-over): The big private industry players, and many more, are gearing up for billions of dollars in government contracts that are so secret, in many cases, the companies will never know how their products will be used.


ENSOR: We'll have more on the satellite gap and possible space wars in the next couple of days. DOBBS: Looking forward to it. David, thank you very much -- David Ensor.

Tomorrow, the report will focus, of course, on the future of U.S. spy satellites, when David Ensor will report on whether the new generation of satellites will be ready before the old ones break down. That's tomorrow night. Please join us.

Coming up next here: "Exporting America," Congress fighting to keep jobs in this country. Congressman Don Manzullo joins us to explain how that can be achieved.

Stay with us.


DOBBS: "Exporting America" tonight: a message that finally seems to be getting through. At a House hearing today, members of Congress blasted the Bush administration for failing to confront China on a ballooning trade deficit.

Peter Viles spent the day at that hearing and is here tonight with a report for us -- Pete.

PETER VILES, CNN CORRESPONDENT: Lou, this is a fascinating hearing. You've got this rising anger -- Congress is hearing it -- about jobs lost to Asia. And then in the middle of hearing on this subject, you had a Commerce Department official telling Congress how important is it for American companies to turn a profit in Asia.


VILES (voice-over): As the president tours Asia, mounting anger back home about the loss of American manufacturing jobs and the administration's failure to get tough in trade talks with the Chinese.

REP. TOM LANTOS (D), CALIFORNIA: And the Chinese are laughing at us because, apart from the ceremonial raising of these issues, nothing happens.

REP. DAN BURTON (R), INDIANA: Our government, whether it's this government, a Democratic government under the Clinton administration, or whatever it is, has to deal with this. And I realize that there's risks in putting the hammer to the Chinese, but something has to be done.

VILES: Behind the anger, a ballooning trade deficit with China, $83 billion in 2001, $103 billion last year, estimated at $130 billion this year. A top commerce official said the administration is, in fact, running out of patience.

GRANT ALDONAS, UNDERSECRETARY FOR INTERNATIONAL TRADE: We expect action from the Chinese, frankly. The time has come to measure up as a practical matter. So the weather is definitely changing.

VILES: But that official, Grant Aldonas, stirred up a hornet's nest when he defended the global ambitions of American manufacturers.

ALDONAS: Congressman, right now, General Motors, the difference between being profitable and maintaining employment in the United States is the earnings they're generating in Asia.

REP. BRAD SHERMAN (D), CALIFORNIA: No one in Beijing believes that the way to help Chinese workers is to run a $120 billion trade deficit with the United States. Their leaders understand that workers need jobs. And our leaders understand only that General Motors can make huge profits exporting those jobs.


VILES: Another surprise in this, Aldonas testified, China's inclusion in the WTO has been -- quote -- "on paper, an enormous success." He pointed out U.S. exports to China up 22 percent this year, of course, imports from China to the United States rising just as fast. So, too, Lou, is that trade deficit.

DOBBS: Amazing, simply amazing.

VILES: Some surprising stuff.

DOBBS: Pete, thanks very much -- Peter Viles.

Now turning to a man who has been at the forefront of this battle, my next guest says the White House and Congress should give American companies incentives to keep jobs in this country. My guest is Congressman Don Manzullo. He's chairman of the House Small Business Committee, which has held hearings on the exporting of American jobs, and joins us tonight.

Good to have you with us, Congressman.

REP. DON MANZULLO (R), ILLINOIS: Good to be here, Lou.

DOBBS: As Peter Viles just reported and as we watched that dialogue, to hear the very idea that the profits in Asia are somehow sustaining U.S. automobile companies, that is mind-boggling.

MANZULLO: Well, it is.

But the issue is, what about the American workers and what about the enforcement of the WTO and the different treaties that we have around the world with regard to fairness of currency?

DOBBS: Fairness of currency -- you have pointed out that Taiwan, Japan, Korea, and China are not particularly interested in listening to Treasure Secretary John Snow talk about not pegging those currencies to the dollar.

MANZULLO: You've got to get tough with them.

China has had its currency since 1994 irretrievably fixed to the U.S. dollar. So regardless of what we do here, the currency rigs it so that the Chinese have undervalued their currency, which is the same as about a 40 percent export duty of U.S. goods going to China and an additional 40 portion discount of Chinese goods coming to America.

DOBBS: You've been focused on this issue for some time.

MANZULLO: Unemployment in the congressional district that I represent 11, 12 percent. Effectively, it's probably 16, 17 percent, because the people have gone off the unemployment rolls.

DOBBS: We have seen 2.6 million, 2.7 million manufacturing jobs exported overseas. We're now seeing high-tech jobs, high-value jobs being exported. We're looking at a half-trillion dollar trade deficit. And then we have the so-called sophisticated economists, if you will, and certain lobbies and special interest group saying, frankly, the hell with the American worker, the American middle-class family. You just don't understand economics.

What is your reaction?

MANZULLO: Well, we have to enforce the trade laws. Otherwise, we should rip them up and take them off the books. Section 301 is a prime example.

DOBBS: So, Congressman, where is the U.S. trade representative?

MANZULLO: I can't answer that. I met today with the secretary of commerce, explained to him the situation back home, give him the documents that we've been circulating now, "U.S. Manufacturing in Crisis" -- this is about the 15th, 16th edition on it -- and said, the administration has to get engaged.

I'm convinced that the president knows -- is aware of the problem. I'm convinced the administration is aware of the problem. Its going to take guts to stand up to Hu Jintao in China and say, you cannot rig the currency the way you have done it; $800 million a week of U.S. investment goes to China.

DOBBS: Congressman Don Manzullo, we appreciate your taking the time to be here. This is so complex, so important, so vitally important, that we hope you'll come back and soon to discuss this.

MANZULLO: You bet. And thank you for raising the issue.

DOBBS: And I hope, Congressman, that you have great success with the administration.

MANZULLO: Thank you.

DOBBS: With the trade representative, with the commerce secretary. Thank you, sir.

MANZULLO: Thank you.

DOBBS: Coming up next: You won't believe what some American companies are doing to avoid paying Uncle Sam his due. Senator Charles Grassley of Iowa is fighting back. He's our guest here next.

And 95 million Americans at the mercy of the mutual fund industry, an industry many investigators are now saying could be riddled with fraud. We'll be joined by the chairman of the Securities and Exchange Commission, William Donaldson, leading the way for reform of the industry.

Stay with us.


DOBBS: Turning now to a story that has caused outrage around the country and Capitol Hill.

A number of U.S. corporations are creatively abusing tax shelters to avoid paying billions of dollars in taxes each year. In some instances, major U.S. cities are leasing their infrastructure for cash from corporations, who then receive large tax breaks in return. The Senate Finance Committee today held a hearing on the issue. Chairman Chuck Grassley said it's time for these, as he called them, hucksters to find an honest living.

Chairman Grassley joins us tonight from Capitol Hill.

Mr. Chairman, it is good to have you with us.

SEN. CHARLES GRASSLEY (R), IOWA: Thank you very much, Lou.

DOBBS: These tax breaks, which effectively involve lease-in, leaseback arrangements, how pervasive are they? How much is it costing the American taxpayer, in your best judgment?

GRASSLEY: Well, we were led to believe by some testimony that a lot of the infrastructure of Europe is covered by these.

You've got the Berlin subway being built by Berlin taxpayers, leased to the -- some corporation in America. There's no risk. It will never be the property of the corporation. And they get the tax benefits. Indirectly, you're having American taxpayers pay for the infrastructure of Europe. But it's even happening in the United States. We had testimony here about the subway in Washington, D.C., as an example.

DOBBS: Senator, this is a remarkable arrangement -- entirely, legal, of course. But is it something that your committee, that this Senate, this Congress, can fix?

GRASSLEY: We need to fix it. It's quite obvious you can't have this abuse of the tax code.

But more importantly is the whole profession of tax shelter writing that brings the most prestigious of accounting firms and law firms and investment bankers together to write tax shelters, sell them, even get -- maybe get a share of the money that's saved for selling them, then they run for the woods. We had examples today of innocent taxpayers signing their tax forms stuck holding the bag when their own lawyer, not the lawyer that sold them, but a private lawyer, defending the taxpayer, can't convince the IRS that what a prestigious law firm said was legal was actually legal. And there's tremendous abuse. This is the same way the snake oil salesman did business 100 years ago.

DOBBS: Senator, the very idea that the accounting industry in support of bankers and investment bankers organizing these deals would continue this. What are they, the big four in particular, accounting firms saying to you about these shelters and what they're recommending.

GRASSLEY: Well, they're just awful quiet about it and they are obviously, they don't want this scheme changed and we're going to have to do some things to make it illegal. One is the economic substance doctrine, because there ought to be some risk involved in taking advantage. The other one is to make sure that there's strong penalties for voluntary -- if there is involuntary disclosure of these. See, that's other thing. There is supposed to voluntary disclosure of these, but Treasury study says only 6 percent are. So we need to enhance penalties so if they aren't disclosed, then they're penalized for it. If they are disclosed, then the idea is, IRS looks at it, and determines what's legal and which aren't.

DOBBS: Senator what is the will of the committee right now as you assess it and what is the will of the Senate to crack down on tax shelter to simply eliminate them?

GRASSLEY: Yes we have tremendous support within my committee to do it. I don't think we'll have any trouble getting the bill through the Senate. I don't know how the House will react. I'm -- have to study that. You know there are powerful interests here, we call them K Street lobbyists that are prone to defending this sort of things. There's big fees for defending them on Hill. And you know, the legislative process works to those that want to maintain the status quo and as long as there's nothing done, these schemes can continue. We even find out with Enron coming to the public knowledge the way it has, that the fever for these tax shelters is still very high, because there's a good gamble of writing these tax shelters using these tax shelters and people will willing to take that lottery, gamble, on tax shelters.

DOBBS: Well senator, good luck. We wish you well as you crack down on the tax shelters. And if your track record is any suggestion, you'll be successful. We thank you very much, senator.

GRASSLEY: Thank you, Lou.

DOBBS: While Congress is working on those tax shelters and trying to eliminate those abuses, regulators on Wall Street taking aim at mutual fund managers and regulators in the nation's capital as well. 85 million Americans are invested in mutual fund, many in the crosshairs, those funds in the crosshairs of federal regulators. Allegations of fraud and manipulation surfaced at some of the country's largest funds.

SEC Chairman William Donaldson is leading the effort to clean up the Street and restore badly battered investor confidence. And Chairman Donaldson joins us tonight.

Good to have you with us. WILLIAM DONALDSON, SEC CHAIRMAN: Lou, nice to be here.

DOBBS: The idea that mutual funds were doing market timing and late trading to this level and creating these abuses, were you stunned to find it out?


DOBBS: The idea that mutual funds, which is -- if there were ever something that we think of as in the old parlance, widows and orphans, the mutual fund is in that domain. How could this have gone on for so long, so many years?

DONALDSON: Well, it's a little hard to detect it, particularly in several cases where hedge funds were on the other side of the transaction, were working closely with the mutual fund. They had illegal arrangements, as alleged. And that is a little hard to pick up if you can't get into both sides of the transaction.

DOBBS: Hedge funds, you have been cracking down on them, trying to focus on them and to bring them, if you will, into an arena of predictability and regulation. They're not there yet. When will that happen?

DONALDSON: Well, there are $600 billion in hedge funds out there, 6000, 6000 to 7000. Right now we have no right to go into the hedge funds. And so what we're saying and what our staff is advising, and we're listening to the staff, is that we ought to at the very least register the hedge funds under the Investment Advisers Act so we have the right to go in, see what the accounting is, see what their techniques are, if you will, and make sure they're behaving legally.

DOBBS: With all that this country has endured, all that investors have endured over the course of the past two years, mark it, if you will, from December 2 when Enron collapsed, give us Chairman Donaldson's view of the state of the securities industry today, corporate America, it's integrity, on balance from your perspective.

DONALDSON: Well, Lou, there are 15,000 companies out there that basically I believe are by and large run by honest people working hard. There's kind of a lunatic fringe of the well-advertised names that really went overboard, but what's happened during the 10 years of the bull market is a slippage I think in general integrity, morality if you will, sort of across the board. And this gets into the governance of corporations. And basically we've had sort of the imperial presidency, if you will, and hopefully with Sarbanes-Oxley, the new laws and so forth, we're going to shift responsibility back to the board of directors of corporations.

DOBBS: The imperial CEO, the celebrity, the rock star CEO, and the pay that goes along with it, no one has been more vocal than you that it's excessive, egregiously so, yet these salaries keep flying, they keep growing. What in the world are we going to do?

DONALDSON: Well, the first step is to get the board of directors to focus on this and to ask themselves just exactly, what are they rewarding? And I think that they've gone way too far in terms of short-term orientation, earnings per share, and so forth, too little questioning of what really is corporate performance.

DOBBS: One of those boards, the New York Stock Exchange, not in terms of illegality, but in terms of excess, a culture that was extraordinary in its pay. Dick Grasso, an otherwise fine human being and manager, $140 million. John Reed is interim chairman, saying there will be no separation between the market and the exchange and regulation. Is it conceivable that we would go back to the dark ages of the New York Stock Exchange and preserve its self-regulatory status in the face of what we have seen?

DONALDSON: Well, I think you have to define what you mean by "separation." Clearly, in this day and age, there is going to have to be separation. And that can be either putting regulation way out here in space or getting a corporate structure, governance structure that has the regulatory side of the exchange reporting to somebody different then that's running the market side, that doesn't...

DOBBS: How about having them report to the SEC in terms of regulation?


DOBBS: It does, after all, say Securities and Exchange Commission.

DONALDSON: Oh, we do have an oversight responsibility there.

DOBBS: Do you think it needs to be separated?

DONALDSON: I think there needs to be a greater degree of separation now than there has been, but we're looking forward to John Reed's conclusions on this.

DOBBS: As are we. And Bill Donaldson, we thank you very much for being here. And you have one of the toughest jobs in government right now. We appreciate your taking the time.

DONALDSON: Thanks, Lou. Nice to be here.

DOBBS: SEC Chairman Bill Donaldson.

That brings us to the topic of "Tonight's Poll" question.

Is your confidence in the integrity of corporate America since Enron's collapse, a great deal higher, slightly higher, unchanged or diminished.

Please cast your vote at We'll have the results coming right up.

Coming up next, "America's Bright Future." Our series of special reports this week, we're inducing you to the young men and women who are making that future extraordinarily bright. In a little more than a decade, he's mastered an art form, created a philanthropy and yes learned to play a little golf, and a lot better than me. Bill Tucker will have the report. Stay with us.


DOBBS: Well, joining me now to discuss the political events that are unfolding, Roger Simon, political editor, "U.S. News and World Report": Karen Tumulty, national political correspondent, "TIME" magazine.

Good to have you both here.

Let's start first with this apparent decision on the part of the white house, Karen, to veto $86 billion package because of a $10 billion loan insistence on a part now of both houses?

KAREN TUMULTY, "TIME" MAGAZINE: Well, this is a threat and it's a threat, by the way, that the president, this president, has not made very often. In fact, there's been a lot of criticism of him among Republicans that he doesn't use the threat often enough.

But this is a sort of weird one to figure out because it looked like things in this House-Senate conference committee were going his way anyway, that this whole -- this whole loan business was going to fall out anyway. So it looks like -- like to a lot of Republican on Capitol Hill, like strong arming when it really wasn't necessary.

ROGER SIMON, "U.S. NEWS AND WORLD REPORT": The Republican party, I think is sending a message to their president that they don't want to go back and sell to the public the notion that Iraq could have paid for part of this out of its vast oil reserves. We keep hearing that they're sitting on the second largest oil reserves in the world and have the American taxpayer pay for it instead.

And it's not just a matter, as people are sort of catching on, to -- we're repairing what we blew up. It seems to me a basic fairness to that. It's reforming the entire nation, building things that were never there before.

DOBBS: And this comes at a time when obviously some progress is being made, and particularly with this money, would be certainly an advancement, a breakthrough with Iran on a very critical one-third of the former axis of evil. It just doesn't make political sense, even if it does, in some corners, make geopolitical sense.

TUMULTY: Yes, I think they're seeing something in their polling that suggests that this issue, though, is getting some traction out in the country, that resistance to American taxpayers paying for the rebuilding of Iraq is, in fact, meeting resistance out in the country. So they are trying to give Congressmen something to stiffer their spines.

DOBBS: Where common sense resigns.

SIMON: Always with the American people.

DOBBS: And sometimes to the exclusion. At the same time, the president in APEC, now in Singapore, successful in bringing greater cooperation in the global war on terror, apparently again focused on North Korea which is, unlike Iran, which seems to be conceding some rationality, North Korea unabated in its hardening position.

Roger, what do you make of it?

SIMON: Presidents don't go to these conferences unless there's a minimum result guaranteed in advance. So there was some stuff, you know, in the pipeline before he got there.

But you put your finger on the naughtiest -- one of the naughtiest problems that the Bush administration faces -- what to do about North Korea. And as numerous military types, including Wesley Clark,who's now running for president, as a Democrat pointed out, are -- the real threat to the country and to our allies may not be -- may have been Iraq at all. It may be North Korea, a nuclear power.

DOBBS: And that threat to this president now, one of nine candidates running for the nomination, the Democratic Party -- two of them drop out of Iowa.

Karen, how big a risk are Lieberman and Clark taking?

TUMULTY: A huge one, because what they are -- have decided now, they've either got to strike it big in New Hampshire or have enough money to basically start from a standing start on February 3, when the next round of primaries is. It's an absolutely enormous risk.

DOBBS: The last poll showing Dean, Roger, with double-digit lead in New Hampshire.

SIMON: Yes, several polls have showed that and it shows him close in Iowa. It never pays to disagree with Karen, but this one time I have to disagree.

The point is not whether Iowa is important -- winning Iowa is important or whether winning Iowa gives you a nice boost in New Hampshire, although often it doesn't. The point is, what is the advantage of losing Iowa badly? General Clark and Senator Lieberman were going to lose Iowa badly. Maybe one of them could have extracted fourth. I don't know what that would have done for their campaign. I do know what getting an extra 30 days in New Hampshire might do for their campaign. It might help.

DOBBS: Karen, you get 15 seconds rebuttal time.

TUMULTY: Again, though, it means you need to really do well in New Hampshire and it's going to take a lot more money to make a splash after that.

DOBBS: All right. Karen Tumulty, Roger Simon, thank you both.

Tonight, and all this week, we're featuring this country's brightest young stars in our series of special reports "America's Bright Future." They are the foundation of that future. Tonight, a young man who is one of the youngest and most accomplished violinists in the country. His name is Jourdan Urbach and Bill Tucker has his story.


BILL TUCKER, CNNfn CORRESPONDENT (voice-over): Jourdan's been playing the violin since he was almost 3 years old. He picked the instrument because, in his words, he feels it has tremendous pathos and emulates the human voice more than other instruments.

JOURDAN URBACH, CHILD PRODIGY: I don't have time -- a hard time reading the music. I see it. Sort of like in "The Matrix" where they have the code, right? And the guy doesn't see the code, he sees the people. That's what it's like.

TUCKER: He practices three hours a day, and says whenever he tires of all of that practice, he remembers the satisfaction of performance.

Jourdan also writes books, his first published already, his second finished and in the hands of his literary agent. And he's founded his own charity, Children Helping Children.

URBACH: It's comprised of young professional musicians and we have concerts, one big concert in the playroom of a hospital. Then we go room to room for those who are not ambulatory. We also do fundraisers, which have raised tens of thousands of dollars.

TUCKER (on camera): So what's a kid who's no stranger to a concert hall, who's obviously so talented and gifted do in his spare time? Well, for one thing, he plays golf.

URBACH: I like golf. Golf is fun. Golf is good.

TUCKER (voice-over): And, oh, yes, Jourdan goes to school, and at 11, his honors math project is very honorable.

URBACH: I will analyze the transformation geometry behind the symmetries transformation and tessellations apparent in Escher's drawings.

TUCKER: For now, Jourdan's ultimate goal is not the concert stage but the operating theater. He wants to be a neurosurgeon, to plum the unexplored realm of the human brain, as he puts it.

By the way, that doesn't mean he's not above having some fun with his fellow students during a fire drill about the wireless mic we put on him.

URBACH: See all of this is being recorded. They're hearing you and me. Yes. Wireless system. It's worth maybe $100,000.

TUCKER: Whatever you say, Jourdan.

And just for fun, he sometimes throws a little Gershwin on the strings.

Bill Tucker, CNN, New York.


DOBBS: And tomorrow night we introduce you to a young man who published his first novel before many kids his age had read their first novel. That's tomorrow night. We hope you'll join us.

And tonight's thought is on our precious youth: "Life's aspirations come in the guise of children." That from Rabindranath Tagore.

Also ahead, we'll share some of your thoughts and angry investors and the backlash over CEO pay. Christine Romans will report on what is being done to cut those CEO salaries down to size and the good news on the market.

Stay with us.


DOBBS: Now the results of our poll. The question, what is you confidence in the integrity of corporate American since Enron's collapse.

Two percent of you said, a great deal higher, 3 percent said, slightly higher, 10 percent said unchanged, 85 actually said diminished.

Well, on Wall Street today the major stock averages moved in different directions, that means they were mixed. The Dow down 30. The Nasdaq up almost 16. The S&P 500 up just over a point.

Christine Romans is here with the market for us.

CHRISTINE ROMANS, CNNfn CORRESPONDENT: And AT&T was the biggest drag on the Dow, Lou. It has a multimillion dollar accounting problem and investors punished those shares. The company misstated $125 million in expenses in 2001 and 2002, and two managers there bypassed the company's accounting safeguards to hide the error. Meanwhile, Massachusetts regulators called their probe into mutual fund misdeeds fruitful. Reports say charges against Putnam Investments are imminent. But Massachusetts' top regulator, Bill Galvin would only say the probe is moving very rapidly. Putnam, says it has done nothing wrong.

Here in Washington, Lou, Accounting Board Chief Bill McDonough talked tough on corporate pay. He (UNINTELLIGIBLE) directors to think long and hard about the compensation of the executives who head the corporation you and sworn to protect. Member of Congress are told them their constituents are angriest about CEO pay. He urged boards to reexamine compensation.

He, what's the worst that can happen? Which brings me to some of the richest restricted stock payouts to CEOs in the third quarter. Nextel's Timothy Donahue, was awarded 1 million shares in August, at the time worth about $18 million. Citigroup's new CEO Charles Prince got almost $15 million in restricted stock. James Ferrell of Illinois Tool Works, got 140 restricted shares worth $9.5 million. And another glimpse into the rarefied air of CEO pay, today in the Tyco trial going on in New York, a former HR woman there said that she got a severance package in 1998 when she was fired essentially. $325,000 for three years, 500,000 dollar bonus, $850,000 house in Manhattan, $450,000 house in Montana.

DOBBS: Think of what she could have done if she would have been effective at her job.

All right, Christine, thanks.

Taking a look now at some of "Your Thoughts," from, Riverside, Rhode Island. "Mr. Dobbs, you are the only news show that I watch from start to finish. Your segments on outsourcing, bio-sludge, and overpopulation are excellent and what every American needs to know." Joan K. Bowden.

From California, "Dear Lou, want to take a moment to thank you for your great program. You bring out issues that concern all of us and are issues our government should be talking about such as the U.S. job market and the exporting of jobs from America. It's about time someone tell this country to wake up and smell what's left of the coffee." That is from Fred Dekelaita.

From Los Angeles, "Lou, I watch your program everyday and it upsets me that you and your producers have conveniently lumped together the disparate issues of overcrowding, exporting of jobs, and illegal immigration with the consequence of giving the false impression that illegal immigration is responsible for the first two issues. The e-mail comments you present everyday are invariably reflective of your views. I'm sure you'll not use this one from me." Well, Eugene, guess what.

And Pawleys Island, South Carolina, "Lou isn't it amazing how quickly and efficiently the FBI and DOJ are moving in prosecuting the case of this young man who left some box cutters on airplanes merely to point out the shortcomings of the security check system. Just imagine the results if these agencies would apply that same efficiency and dedication to the thievery at Enron or WorldCom or to the search for the individual who released the name of the CIA operative." John McNerney.

And from Dallas, Texas, "Thanks Lou for calling attention to controversial issues. Thanks also for sharing your e-mails from around the nation as they express more common sense than most of our politicians. Just goes to show that we the people is still alive and well in America." E. Pearson, thank you for the remind and thanks for letting us hear from you.

We want to hear from you. E-mail us at That's our show for tonight. Tomorrow, join us as remain hear in the nation's capitol. I'll be talking with the Senate Majority Leader Bill Frist and also Senator Diane Feinstein, and the Chairman of House Ways and Means Committee Bill Thomas. All of that tomorrow. Tomorrow on our "America's Bright Future" we profile and introduce you to a young man who wrote a best selling novel all before he could drive. Thanks for being with us. For all of us here, good night from Washington. "ANDERSON COOPER 360" is next.


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